Competition law developments in East Asia - September 2015

This month’s editors: Maxime Vanhollebeke, Emir Pohan, Shan Hu, Pearl Yeung, Sophie Chen, Yui Ota, Lydia Fung and Arthur So.

Below is an excerpt from our monthly Competition Report. More detailed commentary on these issues and other recent competition law developments in the Asian region is to be found in this month’s edition of our report available on a free subscription basis (see further below).

Following the enactment of the Singapore Competition Act in 2004, the Competition Commission of Singapore released comprehensive guidance in 2007 in the form of implementation guidelines, whose contents were largely inspired by EU and UK enforcement experience. This month the Commission released proposed revisions to its guidelines, which are meant to reflect its evolving enforcement practice and the decisions of the Competition Appeal Board.

While the Commission proposes useful revisions to its substantive rules (particularly as regards its assessment of mergers), the most significant area of reform concerns enforcement procedures. The Commission proposes to introduce a “fast track” settlement procedure, offering a reduction in the amount of fines to parties that admit liability for their infringement. This new procedure complements the existing leniency policy, which offers rewards for cooperation in the context of cartel investigations. Note however that settlements are contemplated also in respect of other infringements, such as abuses of dominance.

One procedure which continues to be left out of the revised guidance is the commitments process, under which the Commission agrees to suspend its investigation in return for an undertaking from the parties to cease a particular conduct. Despite the lack of express statutory basis in Singapore for the procedure (except in the context of mergers), commitments have become a useful way for the Commission to bring conduct of concern to an end. Commitments are also regularly used by the European Commission, and they are expected to play a significant role in the enforcement of the Hong Kong Competition Ordinance, which will take effect in December.

On 29 September, the Chinese Ministry of Commerce (MOFCOM) published four decisions sanctioning six companies in total for failing to seek pre-merger clearance under the Antimonopoly Law. All four decisions were adopted on 16 September. The first two decisions relate to the establishment of joint ventures, while the latter two concern share acquisitions.

In the first decision, MOFCOM imposed on each of BesTV and Microsoft a fine of RMB200,000 ($31,000) in relation to the establishment of a joint venture in October 2013. The case was triggered by a complaint made in June 2014, which prompted a MOFCOM investigation in January 2015. Subsequently, MOFCOM found that the parties had signed a contract in September 2013 for setting up a joint venture to engage in designing, developing, producing and selling game applications primarily for Microsoft’s platform, the XBoxOne.

In a similar transaction, MOFCOM imposed a fine of RMB150,000 ($23,000) on each of CSR Nanjing Puzhen Rolling Stock and Bombardier Transportation Sweden for late notification of the establishment of a 50/50 joint venture. The joint venture was set up and received its business licence in November 2014. The parties realised that the transaction might have triggered a merger filing requirement under the Antimonopoly Law. They voluntarily approached MOFCOM and submitted a late notification.

The third decision concerns a minority share acquisition. MOFCOM imposed a fine of RMB200,000 ($31,000) on Shanghai Fosun Pharmaceutical in relation to the acquisition of a 35 per cent stake in Suzhou-based ErYe Pharmaceuticals. The case was triggered by Fosun’s pre-notification consultation with MOFCOM in December 2014 concerning its acquisition of the remainder of ErYe’s shares, during which MOFCOM discovered that Fosun had acquired its initial stake without seeking approval under the Antimonopoly Law.

In the last decision, MOFCOM imposed a fine of RMB150,000 ($23,000) on Fujian Electronics and Information Group for the acquisition of a 35 per cent stake in Shenzhen ZhongNuo Communications. During the public notice period of a simple case procedure where Fujian Electronics’ indirectly-controlled subsidiary Furi Electronics notified MOFCOM of its acquisition of ZhongNuo Communications, a third party informed MOFCOM that Fujian Electronics had already acquired control over Zhongnuo Communications, thereby prompting a MOFCOM investigation in December 2014.

MOFCOM found that every transaction in question – the setting up of the joint ventures in the first two cases and the unreported 35 per cent acquisition of shares in the latter two – gave rise to a concentration under Articles 20 and 21 of the Antimonopoly Law and that the transactions met the filing thresholds set out in Article 3 of the State Council’s Regulation on Notification Thresholds for Concentration of Undertakings. Every transaction was therefore clearly subject to a pre-merger clearance requirement. By failing to notify the reportable transaction, the parties were in violation of the Antimonopoly Law.

For each case, MOFCOM explained that upon reviewing the transaction’s effects on competition, it had concluded that the transaction did not restrict or limit competition. Accordingly, no transaction was ordered to be unwound. Additionally, the following features served as mitigating factors for the companies: in the first two cases the companies endeavoured to cooperate in the investigations and made “supplementary” notifications and, in the latter two cases, notwithstanding the 35 per cent acquisitions in question, each company had notified MOFCOM (either by itself or through its subsidiary) of its intended acquisition of additional shares in the target companies. As a result of these factors, MOFCOM fined each of the infringing parties an amount that is less than the maximum statutory amount (RMB500,000).